How to Make Your Budget Automatic | The No-Budget Budget Explained

Just like most things in life budgets aren’t
for everybody. For some people, it’s actually best to not
have a budget or at least that’s what the author of the best-selling book the automatic
millionaire David Bach believes. Let’s see if it’s true. As you can tell by the title today I’m going
to be covering a very intriguing budget known as the automatic budget or sometimes as the
no-budget budget. Hey everyone Daniel here and welcome to Next
Level Life a channel where you can learn about Investing, debt, retirement, and many other
general financial education videos because the school’s aren’t going to do it for us. So if any of those topics sound interesting
to you or if you want to learn how to better handle your money and have more financial
freedom be sure to hit that subscribe button and the bell next to my name to be notified
every time I upload a video. So when you think about being responsible
with your money a budget may very well be the first thing that comes to mind. And judging by how many budgeting videos I’ve
made already on this channel I would understand if you’re a little confused about why I’m
making a video that says that for some people no budget is necessary. The last thing I want to do is misguide you
so I want to get this out in the open first… The automatic budget is not for everybody. And if most of us are honest with ourselves
most of us do need some kind of budget. It may not be the zero-sum budget not everyone
needs that in depth of a budget but most of us do need some kind of budget. However, that doesn’t mean that budgets are
for everyone. Some people do have the necessary traits to
live a financially successful life without a budget. So as you’re watching this video keep that
in mind and be very honest with yourself because as intriguing as this budget is it isn’t for
everybody. And the last thing you want to do is get yourself
tied to the idea of this budget if it isn’t for you because then if you try it and it
doesn’t work it’s all the more discouraging when you realize you got to go back to more
traditional budgets. So with that disclaimer out of the way let’s
get into the no-budget budget. WHAT IS IT:
So what is the automatic budget and how does it work? Well as the name implies the automatic budget
aims to make as much of your financial decisions for you automatically as possible. This is done by setting up automatic payments
for things like your mortgage, rent, cell phone bill, savings and retirement contributions
and anything else that you can automate. And it’s actually pretty surprising how much
that is. After you’ve automated all the expenses and
savings that you can whatever’s leftover is yours to spend on whatever you want. The idea is that from here on in you will
be able to just monitor your finances as opposed to setting up a monthly budget. So who does this type of budget work best
for? In my opinion, it works best for those who
either already have more money coming in than they do going out or at the very least have
a pretty good idea of where they want their financial life to go. In other words, they have well-established
goals. This is because for this budget to work long-term
you need to be willing to pay yourself first like David Bach preaches but you’re also going
need to be willing to live on less. Why do I say that? Because just like with any budget you need
to be able to invest enough now so that you can support yourself and retirement later. The difference with this budget is that since
it’s a lot more like a set-it-and-forget-it budget than most because you decide from the
get-go how much you’re going to allocate to what category and basically just have it done
automatically from then on your initial decisions are going to have a huge effect on your financial
future. Say if you’re in your early twenties and just
starting your first job and you decide to pay yourself 10% of your wages and you use
the automatic budget throughout your entire 40-year working career. Just to make the numbers easier let’s assume
that you make $50,000 a year meaning that if you’re putting away 10% you’re saving $5,000
a year. At 8% rate of return, you would wind up with
$1,351,423.77 when you retire. However, there are a couple of things to consider
here first $1.35 million is good no doubt about it but it’s not going to be quite as
good 40 years from now as it is today. If we assume inflation is about 3% per year
on average that means that the $1.35 million would be worth about $430,000 today. And if you were to get an 8% rate of return
on that you would realize that in today’s dollars your retirement income would be about
$34,400 a year. Now some of you might go well that’s fine
I can live on $34,400 today and since it’s in today’s dollars why would this be a problem? And you have a point it might not be a problem
I’m not trying to use this example to denigrate the automatic budget that’s not my intent. But in this example, you were saving 10% of
your money and making $50,000 a year which means you were living off of $45,000 a year
in today’s dollars. So you would need to adjust your lifestyle
a little bit in retirement which is probably not what we would want to do if we had the
choice. That’s the great thing about the automatic
budget though is you do have the choice and that’s why I was saying your initial decisions
are so important. Let’s say that in the same example you decided
to save 20% of your income instead of 10 but you still made $50,000 a year. That would mean you’re saving $10,000 a year
and would wind up with $2,702,815.10. That equates to a little under $830,000 today
meaning that your retirement income in today’s dollars would be a little over $66,000 a year. Now, of course, you can always change your
initial decision later on down the line. Say if you went your first year saving 10%
and realize that you could still manage to get by comfortably if you up to 20% you could
certainly do that in the next year or whenever you realize it but I’m just going to say the
next year for this example. And say if you did that. Say if you upped your investments from $5,000
to $10,000 a year or from 10% to 20% given the numbers in the last example you would
end up with $2,597,881.85 when you retire. That’s right around $105,000 less than had
you started at 20%, but it’s still significantly better than staying at 10% the whole time. It
translates to a difference of a little over $32,000 in today’s dollars and roughly $215
a month difference in retirement income in today’s dollars. So it isn’t necessarily backbreaking if you
catch it early but that initial decision is still important and can make a difference
when dealing with this budget. So the way I see there are 2 main ways that
this budget could fail. The first way is if you aren’t aware of
where you’re money is going and how much of it is leaving the house each month. Because you may end up not having enough money
to cover your expenses or you may end up forgetting some expenses that you don’t pay every single
month such as car tabs and other irregular expenses like that. This means that the term no-budget budget
is a little misleading because you do have to set up the budget initially just like with
any other one. It’s just that you don’t have to do a
new one every single month assuming you set up the initial budget properly. The second way that this could fail is by
not leaving you enough money to live on when you reach retirement like I already covered. So that’s how the Automatic budget works. As always if there are any other types of
budgets that you want me to cover let me know in the comments below. But that’ll do it for me today once again
if you enjoyed this video be sure to subscribe and hit that Bell next to my name so that
you’ll be notified of all my future uploads. I generally upload every single Friday, and
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with them and let’s really get this information out there and start our own Financial revolution.

22 thoughts on “How to Make Your Budget Automatic | The No-Budget Budget Explained

  • I keep breaking my budget. But it’s spending more on food (eating out), while spending less than expected on makeup and sometimes even clothing. So I’m heading the right way at least? (I spent way too much on the latter categories last year, when I first started tracking). Food is better to spend extra money on…right?

    Edit: to clarify, I do have a sort of built-in buffer zone. I never actually spend more than I have. But I do save less than I hope most months. But only like $70 over.

  • There is no way someone is going to make 50k/year from age 22 to 65. You can maintain the 10%, but due to promotions and other wage increases the person would be contributing much more money. Also as major expenses disappear (mortgages) you would not shift that $ to a Jaguar, you would increase the savings rate. Conversely as the kids hit college, the rate likely would go down. Additionally, since your income is fixed in your example you fail to state that you CAN'T save 10% as every bill you have will cost more in 20 or 40 years due inflation. Love your videos. It gets non thinkers thinking, but the devil is in the details and you are white-washing too many gotchas.

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  • Wait, what? Are there people who make a new budget every single month? I mean, I get that if you are just about getting by or if your income changes a lot, but if not: your income, rent, utilities etc. are all the same or at least similar every month. Why make a new budget every time?

  • I don't budget at all. I just jot down the bills that need paying and on what day in a spreadsheet. After that the rest is "free" money. Food isn't that big of a deal, I eat when I'm hungry simple as that and those rouge expenses just get paid with the "free" money. DONE.

  • 3 % average infaltion for 40 year . I think it will be much more . So the today money like the 33400 or 66000 of annual retriemenr income in todays money , will be too much less

  • One thing that people always forget when thinking about investing in the market is taxes. Remember, you will pay capital gains tax and income tax in most places depending on what the rates are when you retire your strategy could workout to be underpowered. Always remember to give yourself breathing room ontop

  • I budget kind of like this, but with some small differences to maximize my savings. What I do is automate as many bills as possible (including small auto-deposits into a separate account for uncommon expenses like car tags, home insurance, taxes, etc.) then I give myself a budget for other expenses (gas/groceries). I then account for a bit of buffer each month in case I overspend on something, like going out for example. Once that is all accounted for everything else that's left over goes into savings, which determines my real savings rate. Just in case I have a really lean month or something I'm still paying myself first with my 401k which is automatically withdrawn from my paycheck.

    It looks something like this without doing math for taxes (not my real numbers):
    Monthly Income (before 25% to 401k): $4000
    Monthly Income (after 401k): $3000
    Automated Recurring Bills (Mortgage/Electric/Water/Health Insurance/etc.): $1500
    Gas: 100
    Groceries: 400
    Uncommon Expenses (Auto-deposit into an interest earning account): $150
    Safety Buffer : $200

    Total Monthly Expenses: $2,350
    Leftover to invest: $650
    Total Savings $1,650 (41.25%)

    This is possibly a terrible example and I'm sure I've missed something. This strategy probably won't work for many and requires you to make more than you spend and it would also help to have a safety net of 3-6 months expenses since it only puts about $200 into your checking account each month (but if unspent it will grow each month to develop a safety net).

    Works for me though 🙂

  • I want to plan a no Budget Automatic Budget for my Higher Education needs as well as i want to make a no Budget Automatic Budget for my Professional practice kindly advice Thank you

  • I know it was asked many times in different videos. But could you please explain this particular one, how is it possible to have NET WORTH $1,3M by investing $5k/year with 8% return? By my calculations it will be only $217k after 40 years… Here is my sheet, you can copy it and make changes to point out the mistake, or you can provide with yours, thanks!

  • Automating savings, regardless if you have a budget or not, is such a wise decision. Many use the idea that they'll put any "left over" money at the end of the month into savings, but this creates a situation where it's very easy to keep spending a little more and saving a little less, with many not saving at all. I'm a big proponent in "paying yourself first" by putting money into savings straight away before you're tempted to blow it on consumer goods.

  • it's hard to be aggressive in your retirement planning or budgeting when you are a single mother expected to help your children with higher education and also plan for retirement.

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